* Dollar hits two-week lows against currency basket
* U.S. jobless claims fall, reading clouded by technical
* Euro/dollar and dollar/yen one-week implied vols jump
By Wanfeng Zhou
NEW YORK, Sept 12 The dollar fell from a
seven-week high against the yen on Thursday as U.S. bond yields
declined and as investors speculated the Federal Reserve will
take a more cautious approach toward reducing its stimulus next
The euro was little changed against the dollar, recouping
losses it made after data showing an unexpected decline in U.S.
jobless claims and a contraction in euro zone industrial output.
Analysts said the dollar could remain under pressure going
into the Fed's meeting next Tuesday and Wednesday. Uncertainty
about the timing and pace of Fed action grew after last week's
disappointing U.S. August employment report.
Data on Thursday showing U.S. initial jobless claims fell
sharply last week further clouded the picture as much of the
decline appeared due to technical problems in claims processing.
Before the Fed meeting, U.S. retail sales and consumer prices
will be closely watched.
"Unless we get a significant new piece of information, we're
going to be in this range-bound pattern, maybe with some bias
for dollar weakness, as we wait for the Fed," said Vassili
Serebriakov, FX Strategist at BNP Paribas in New York.
The dollar lost 0.7 percent to 99.22 yen, retreating
from a seven-week high of 100.60 yen hit on Wednesday, according
to Reuters data.
The euro was little changed at $1.3312, hitting a
session low of $1.3259 after the U.S. claims data.
Euro zone industrial production fell 1.5 percent in July,
compared with a 0.1 percent increase forecast, a sign of
the weak demand from European households and the shakiness of
the bloc's economic recovery.
European Central Bank President Mario Draghi said Thursday
that the recent rise in bank-to-bank borrowing costs was
unwarranted. He took a cautious view of the recent signs of
stabilization in the euro zone economy, saying the recovery was
still "very, very green".
Against the yen, the euro lost 0.7 percent to 132.02 yen
. Against the pound, it was trading near a recent 7-1/2
The dollar index, which measures the greenback versus
a basket of six currencies, fell 0.1 percent to 81.411, having
hit a two-week low of 81.358, the weakest since Aug. 28.
Markets have tempered their expectations for any aggressive
stimulus withdrawal by the Fed. That has led investors to trim
long dollar positions built on expectations the Fed will unwind
stimulus by a much larger amount.
"It looks like the Fed will only make a modest $10 billion
tapering next week. So investors are adjusting their positions
accordingly," said Jane Foley, senior currency analyst at
Rabobank. "The Fed will be very careful with tapering and will
probably only dip its toe."
Reflecting nervousness before the Fed meeting, euro/dollar
and dollar/yen one-week implied volatilities - a gauge of how
sharp price swings will be in the near term - shot up.
The one-week euro/dollar implied vol was trading
at around 7.85 percent, much higher than the one-month implied
vol around 7.2 percent. The one-week dollar/yen implied vols
were also trading above one-month implied vols.
Sterling cut losses against the dollar and hit a
session high against the euro after Bank of England
Governor Mark Carney showed no apparent unease over rising bond
yields. Sterling was last up 0.1 percent at